5 Rules of Thumb: Key Points to be Consider Before Making Investments

After certain age or after getting matured every person realise how important investing is for your future needs and most common topic searched today on the internet is “Rules of Thumb or guidelines for building wealth”.

Let us understand basic thumb rule for building wealth. Believe me, you are successful in understanding and implementing five basic principles then you will be able to make good returns on your capital investment.

“Rules of Thumb for Investing”:

Below listed are the 5 thumb rules of investment and building wealth when investing in financial markets like stocks, futures, options, forex or any other markets:

Rules of Thumb: 1 – Save money regularly.

Rules of Thumb: 2 – Learn the basics of investments.

Rules of Thumb: 3 – Identifying investment options.

Rules of Thumb: 4 – Diversify your investment.

Rules of Thumb: 5 – Review your portfolio periodically.

First two rules are very simple and straight forward, First and foremost target should be to control or cut your expenses and start saving money regularly. Small income amount saved periodically can help you to build a surplus wealth for investing in few months or years. Second thing is to learn general fundamentals of investing. Under basic learning’s you should understand concepts like inflation, risk, investment options, power of compounding, investment plans, etc. Grab the basic knowledge of how your money can work for you, for this you can read articles, blogs or our financial tutorials and definitions if you haven’t read yet.

Since we know that third rule is extremely important, first two rules will assist you in third rule to pick right investment at right time. To make no mistakes in third rule once should move step by step; initially draw your plan on a piece of a paper, draft your financial plans, get the expert option on investment, valuation of investment, right time for investment, take assessment of your potential risk, note down the pros and cons of your investment choice and once you are ready to get started, give your best move your best shot to be on a winning side of this investing game. Warren Buffet, one of the billion dollar players of investment has said that “If you are not familiar with the business model, day to day operation of company, or revenue earning model for now and for future, then it’s better to stay away from it”. This principle applies to every other investor’s.

Rule 4 of the thumb rule says ‘diversification’, which means to be a smart investor you have to make diversified financial plans. Always remember never to invest every single dollar into one stock or one fund, since it may be a huge risk for your portfolio. Investment returns are subject to market returns neither two companies work in the same way nor their returns are same. If one of the assets fails to move for certain duration, in that case if you hold other assets then you can fulfil your expected returns on your portfolio.

Last rule that is rule number 5 says that ‘Review your investments’. Now that you have diversified stocks in your portfolio, keep reviewing your portfolio at regular intervals. This will assist you to remove non-performing assets from your portfolio and hold best return stocks or funds merely. For example: You have 10 different stocks in your portfolio and after some months you get to know that one of the company from it has incurred massive and need to pay huge amount of penalties against lawsuits. In such circumstances you can remove that stock from your portfolio and identify other good performing assets for investment.

Conclusion:

Every other investor who wants to start investment has to undergo five general rules of investment. It is recommended that investing without knowledge or partial knowledge is harmful at least you should know every detail about your selected investment. History reveals that people with lack of knowledge and who prefer to make fast money with the help of tips may either ruin their portfolio or end their life in extreme scenario.